EU Proposal to expand the EU FDI-regulation

The European Commission has published a first draft of a revised regulation on the screening of foreign direct investments (“FDI”). The proposal will expand the scope of the current FDI-Regulation (EU) 2019/452. The FDI-regulation is a response to the growing concern about certain foreign investors seeking to acquire control of EU companies that provide critical technologies, infrastructure, or hold sensitive information and whose activities are critical for security or public order.

The new EU FDI-regulation, if passed, will make it mandatory for member states to apply FDI-screening. Denmark has already introduced such screening in the Danish FDI-Act (in Danish: “investeringsscreeningsloven”) which first came into force on 1 July 2021.

Currently, 22 out of 27 EU member states have introduced a screening mechanism.

Expansion of affected investors
As already implemented into the Danish FDI-Act, the EU proposal will broaden the affected foreign direct investors, to also include investments made by EU entities when the EU entity is controlled, directly or indirectly, by a foreign entity of a third country, regardless of whether the ultimate owner is located in the EU or elsewhere.  However, the EU Commission propose to exclude portfolio investment, as the FDI framework should not cover acquisitions of company securities intended purely for financial investment without any intention to influence the management and control of the undertaking.

The EU Commission encourages member states to include greenfield foreign investments in the scope of transactions covered by the FDI-screening, as it is found that early investments may create lasting and direct links between a foreign investor and new facilities or new undertakings. There is currently in the Danish FDI-Act an exemption for startups in their three first financial years within certain investment thresholds.

Procedural rules
The proposal will strengthen the cooperation mechanism for member states and the EU Commission to exchange information including notification procedures, and a member state must give due consideration to issues raised of other member states’ concerns or the EU Commission’s opinion about risks to security or public order in respect to an investment. Deadlines and procedures will be aligned when several foreign investments are linked to the same broader transaction and careened in several member states. Therefore, the new cooperation mechanism may impact the time frame of the screening process which, under the current Danish FDI-Act is defined as 45 calendar days for first phase screening and 125 calendar days for second phase screening.

Harmonized screening rules
With the new regulation, the core elements of the national screening mechanisms will be harmonized. Screening will as a minimum be required within critical technology areas such as semiconductors, artificial intelligence, critical medicines, biotechnology, financial systems, and dual-use and military items. These critical areas are already encompassed by the Danish FDI-Act; however, the new EU FDI-regulation may impact on the scope and interpretations of the covered activities as the EU Commission with the new regulation will foster the exchange of good practices and administrative cooperation among the member states and will detail the covered activities in annexes to the EU FDI-regulation.

New Danish FDI-act

The update from EU overlaps with the Danish government’s legislative program for the year 2023-2024, where it is stated that the Ministry of Industry, Business and Financial Affairs is working towards updating the Danish FDI-Act. A concrete proposal has, however, not yet been published.

Next step:

The EU Commissions first draft of the published new FDI-regulation will now enter into trilogue negotiations with the EU Parliament and the EU Council.

As there are no concrete proposals for an update to the Danish FDI-Act yet, a timeline for a revision of the Danish FDI-Act cannot yet be defined.

Tags:  Cross-BorderGovernance